Gas prices spike; blame Wall Street?

WASHINGTON — Gasoline prices are soaring again and eating away at the purchasing power of ordinary Americans. And again, financial speculators appear to be a big part of the story.

The national average pump price hit $3.74 for a gallon of unleaded gasoline Tuesday, up 44 cents per gallon from just a month ago, according to the AAA’s Fuel Gauge Report. In the Seattle-Bellevue-Everett area, it was $3.73, according to AAA — up 30 cents from a month ago.

“It’s the 33rd day in a row that we’ve seen a consecutive increase” nationally in gasoline prices, said Nancy White, a spokeswoman for AAA, who said there are several explanations but that none seem too convincing.

Rising gasoline prices act like a tax on consumers, harming the economy by whittling away at the amount of money the consumer can spend on other things. Gas expenditures as a percentage of U.S. household income hit three-decade highs in 2012, and the recent spike suggests 2013 might not be much better.

The rising gasoline prices come even as the United States now produces more than half the oil it consumes. In fact, the nearly 800,000 barrel-per-day increase in U.S. production output from 2011 to 2012 reflected the largest one-year jump since oil drilling began in 1859.

The U.S. Energy Information Administration projects that U.S. oil production will rise from 6.89 million barrels per day in November 2012 to 8.15 million by December 2014. At the same time, the International Energy Agency has lowered its estimates for global demand for oil. OPEC, the oil-exporters cartel, has reduced production.

It all argues for lower oil prices, or at least less volatility in the prices.

Enter financial speculation. Commercial users of oil such as airlines and trucking companies that once dominated 70 percent of the market for future deliveries of oil now represent just 30 percent. Noncommercial financial speculators dominate 70 percent of the market.

A speculator is loosely defined as anyone who invests in something simply to profit off fluctuations in its market value.

With oil, the trading is dominated by Wall Street banks, hedge funds, pension funds and other financial institutions that buy and sell contracts for oil barrels without any intention of taking delivery of the oil.

“It’s speculators who are moving markets,” said Bart Chilton, a commissioner at the Commodity Futures Trading Commission. “They are almost exclusively the entire market at certain periods of time.”

Chilton led the charge in seeking limits that reduced how much of the market for crude oil any single trader or company could control. That effort is bogged down in the courts.

“The more textured view would show you that at certain times it is not a question to whether or not speculators are moving the market. Speculators are the market,” he said.

Regulators and other trade groups also say speculators’ presence is felt at the pump.

A jump in wholesale prices may not immediately affect pump prices, but it eventually forces gas-station owners to raise prices too, according to the Petroleum Marketers Association of America.

And in Washington state, it’s possible that action by lawmakers may eventually drive pump prices higher.

House Transportation Committee Chair Judy Clibborn says she will seek a 10-cent-per-gallon increase to the state’s gas tax, part of a broader transportation revenue package that the Mercer Island lawmaker and several of her Democratic colleagues plan to unveil Wednesday.

Other forces are at work in the overall picture, with some analysts citing world events and others pointing to supply and demand.

“Oil prices are inflated by concern about potential oil supply disruption. All I have to do is watch TV for five minutes,” said Fadel Gheit, an oil analyst with Oppenheimer. He listed tension between the United States, Israel and Iran over Tehran’s nuclear program; the civil war in Syria; and factional violence in such oil-exporting nations as Libya and Iraq.

Meanwhile, nearly 1 million barrels a day of capacity has been turned off, with eight refinery closures or announced closures on the East Coast and the Caribbean over the past year.

“What the market is really pricing in is potentially a new era of tighter gasoline supplies that are heavily reliant on imports,” said John Kilduff, a partner in the energy trading firm Again Capital. “We might not ever turn back from these high prices. This isn’t episodic.”